SHANGHAI: China’s yuan extended its decline on Monday after it posted a second month of losses in July, with sentiment dampened by disappointing economic data and investor worries over spreading domestic COVID-19 cases of the Delta variant.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.4660 per dollar, 58 pips weaker than the previous fix of 6.4602.
In the spot market, onshore yuan opened at 6.4640 per dollar and was changing hands at 6.4653 at midday, 33 pips weaker than the previous late session close.
Traders said markets were expecting more monetary and fiscal stimulus in coming months after both official and private factory activity surveys suggested a slowdown in the Chinese economy, while local coronavirus outbreaks added to uncertainty over the uneven economic recovery.
Factory activity growth slipped sharply in July as demand contracted for the first time in over a year, a business survey showed on Monday.
“We maintain our expectation of more supportive fiscal policy especially from on-budget spending and government bond issuance, and also continue to expect one more reserve requirement ratio (RRR) cut in Q4 this year,” economists at Goldman Sachs said in a note.
Other financial institutions including ING, OCBC Bank and Pinpoint Asset Management also saw the possibility of a further reduction in banks’ reserve requirement ratio (RRR), while HSBC and Nomura said targeted support would be more likely.
The PBOC delivered an unexpected broad-based RRR cut in July, with many market analysts and participants interpreting it as a fine-tuning liquidity move.
The ruling Communist Party’s top decision-making body said on Friday that China would stick with its current economic policies in the second half of the year, maintaining an accommodative stance amid an uneven domestic recovery and global uncertainty.
“The bottom line of monetary policy is to ensure ample liquidity with targeted support to SMEs and enterprises in need,” ANZ said in a note.
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